Eurasian Economic Union: Less than favourable outcome for economic integration

In the lead-up to the creation of a Eurasian Economic Union (EEU), foreseen for 2015, the Customs Union (CU) and the Common Economic Space (CES) between Russia, Belarus and Kazakhstan represent two elements of the most ambitious regional integration projects launched in the post-Soviet space since 1991, write Steven Blockmans, Hrant Kostanyan and Ievgen Vorobiov.

Steven Blockmans is a CEPS Senior Research Fellow and Head of the EU Foreign Policy unit. Hrant Kostanyan is an Associate Research Fellow at CEPS and Ievgen Vorobiov is an intern at CEPS. This comment is based on a CEPS Special Report by the same authors entitled “Towards a Eurasian Economic Union: The challenge of integration and unity”, December 2012.

"Over the last two decades, observers of the post-Soviet space have witnessed a proliferation of reintegration efforts among different constellations of countries belonging to the Commonwealth of Independent States (CIS).

This has resulted in the creation of several structures with partly overlapping memberships, different integration objectives and varying modes of governance. The Collective Security Treaty Organisation, the GUAM Organisation for Democracy and Economic Development and the Organisation of Black Sea Economic Cooperation are cases in point.

These arrangements have provided platforms for continuous interaction and socialisation among countries. However, both the speed and the level of integration within these structures vary greatly and none of the arrangements has reached the levels of integration attained within the EU.

In the lead-up to the creation of a Eurasian Economic Union (EEU), foreseen for 2015, the Customs Union (CU) and the Common Economic Space (CES) between Russia, Belarus and Kazakhstan represent two elements of the most ambitious regional integration projects launched in the post-Soviet space since 1991.

An initiative conceptualised by President Nazarbayev of Kazakhstan in 1994, the institutionalisation of the EEU has gained momentum since Vladimir Putin promoted it in the newspaper Izvestia on 4 October 2011. The reactions of policy-makers and analysts have ranged from describing the plan as a pipedream to the next real thing.

Leaving politics aside, how can one assess whether or not the Eurasian integration effort is economically viable? The best way forward is to select practical indicators to analyse the existing Customs Union and CES, so as to glean insights into the levels of economic integration and project them onto the model of the future EEU.

In this regard, an adapted version of the framework conceptualised by Haas and Schmitter in their seminal article of 1964, which has been applied to assess the early stages of the European integration process, is a helpful tool.

The indicators outlined in the adapted model are classified in three groups i) background conditions, ii) formation conditions and iii) process conditions of the economic unions. The background conditions include the size of units (e.g. population, GDP), distance between economic centres and initial rates of transaction (i.e. share of regional exports in overall foreign trade).

The formation conditions assess the implementation of common policies and the power of supranational institutions in these policy areas. The process conditions evaluate the change likely to be brought about by the functioning of the integration structures in terms of the governance mode and the economic effects attained.

When testing these indicators, the relative size of the units and the distance between economic centres present tougher background conditions for Eurasian economic integration compared to those during the earlier years of the European integration process.

The analysis of the current rates of transaction between the members of the future EEU also show an imbalanced pattern of regional trade integration. Coupled with rather slow dynamics for the movement of capital and labour force, this starting-point makes the creation of a fully-fledged economic union between Russia, Belarus and Kazakhstan more challenging than the one undertaken by the six founding states of the European Economic Community.

The analysis of the implementation of the powers attributed to the supranational institutions of the future EEU in designated common policy areas shows less then favourable process conditions for the EEU.

The Eurasian Economic Commission’s powers and the Court’s jurisdiction are rather limited in comparison to those which allowed the European Commission and the European Court of Justice to build a strong law-based community.

The governance mode in the current Customs Union and CES is predominantly intergovernmental. Moreover, the outcome-based transactions that were largely positive for the European integration process (investment flows, migration changes, dynamics of intra-union trade volumes in the most important sectors) are ambiguous for the EEU, and unlikely to change much in light of the preceding considerations.

In sum, when applying the model to the current Customs Union and Common Economic Space between Russia, Belarus and Kazakhstan, and when comparing the findings with the figures applicable to the early stages of the European integration process, the conclusion points to less than favourable outcome for economic integration within the context of the EEU."